Costing labour rates

Your workshop should be contributing to the profits of your business, not presenting a drain on finances. All too often it is regarded as the place where PDI's are carried out, with just a small contribution from chargeable work. It can, and should, make money, but first you must know what it is costing you - and this in turn, will establish an hourly rate for you.

1. Break down the proportional costs that your workshop represents by looking back over your last year's accounts - i.e. if the workshop has 1/3 of the space, then 1/3 costs should be allocated.

(a) light and heat £

(b) rent and rates £

(d) insurance £

(e) admin staff £

(f) refuse collection, etc £

plus full cost of:

(g) transport, inc repairs & maint £

(h) wages of workshop staff £

(i) capital expenditure on equipment £

(j) tool replacement £

(k) workshop training £

Total for the year £

Divide by 52 to find average weekly cost £

Divide by the total number of hours worked in one week by all mechanics £

The last figure will tell you what each mechanic needs to account for if your workshop is to break even.

2. Take a close look at how many hours of productive work are actually logged by mechanics. This will include any time spent building up machines for PDI, warranty work etc or helping in the stores or showroom. Get them all to fill up a time sheet for a trial period of a week or a month - both you and they will find out that it is almost impossible to account for anything like the number of hours that they are employed.

3. Assuming that a mechanic works an 8 hour day on chargeable work, then theoretically, the job cards will add up to that. In practice, time spent talking to a customer, finding spares, cleaning the bike, etc, will not be included and the figure will fall well below what it expected. Ideally, based on chargeable work alone, the workshops should show profit, the spares and accessories used will go towards profit in the stores and the time spent on PDI and warranty should be charged back to sales. It may be that if certain bikes take a long time to PDI and cause the most warranty problems, then a less problematic brand may well add to bottom line profits even though the retail price is the same.

4. Customer resistance. There is no doubt that cycle repairs create resistance when the invoice is presented. For too long, retailers have been selling themselves short and customers have become accustomed to low prices. Those same customers, however, probably expect to pay around £40 per hour for car repairs, plus call out charges and £30 per hour for washing machine repairs, etc - so don't feel that you cannot charge the correct rate for your business.

5. An interim step. If you find that you are at the in-between stage where your labour charges are just below what they should be, but you don't feel ready to put the full increase on, try a different tack. Add on ‘talking time' where the customer is receiving advice and information from the mechanic about the bike and add it in the to job time. Take a tip from the motor industry where every invoice has screenwash, lube etc automatically added on at the bottom - add on lubrication, chain clean, greases - whatever has been used during the repair.

6. Summary

(a) The time charged for the repair must include any road test, clearing the workbench, making up the job card, talking to the customer etc.

(b) New equipment purchased may cut the repair time down, but this must be balanced by the need for its maintenance and repair, plus recovery of the capital cost.

(c) If the rate you work out seems disproportionately high, then a re-appraisal of your working practices may be required.